Santa Clara County to explore forming its own public bank

The Santa Clara County Board of Supervisors on Tuesday unanimously voted to explore the legality of creating a county-operated public bank in support of a California bill that, if passed, will allow local governments to form their own banks.

Advocates say that public banks would help strengthen local institutions, keep public money within the local economy and finance public projects.

“I think we have an opportunity for being able to use public dollars better and also comport ourselves more as a public benefit corporation,” said Supervisor Cindy Chavez, who added that frustrating challenges with banks such as Wells Fargo and growing national attention on the prospect of a public bank system both contribute to her support.

“Public banks not only save taxpayer money, but they can also make money,” added Santa Clara resident Judy Young. “Bankers know their customers as opposed to big banks that are so far removed by their customers they don’t really know what the risk is. With a local public bank, you know what the risk is with a customer. It would also make sound investments in local community projects and keep money circulating in the local economy.”

The proposed bill — Assembly Bill 857 — would allow cities, counties and municipalities within the state to set up their own banks for the first time in history, giving local government the control to deposit and regulate public funds. The landmark bill was authored by Assemblymember Miguel Santiago (D-Los Angeles) and Assemblymember David Chiu (D-San Francisco).

Other cities in the Bay Area have also signed onto the idea of a public bank, including San Jose after its City Council approved a memo in March that abandoned a proposed contract with Chase bank. Chase won a bid for the city’s banking contract, but the council members decided against partnering with the institution after it was accused of wage theft violations.

“While the State deliberates over the proposed AB 857 during this legislative year, the City should be proactive in the legislative process and strongly consider how this bill could benefit the 10th largest city in America,” said council members Raul Peralez, Magdalena Carrasco and Sergio Jimenez in a memo.

While all the county supervisors supported the idea Tuesday, some were cautious about the costs of forming a public bank, especially among the growing list of other infrastructure projects the county has in the pipeline.

“There’s nothing guaranteed about banking,” said Supervisor Mike Wasserman, who added that the creation of a public bank will not necessarily “create more money for the county.”

While he agrees that a public bank will provide an alternative means of assistance to the most needy, citing how loan sharks often rack up interest rates for the working poor, Wasserman said there’s only so much money that can be invested for new endeavors, as the county continues to approve funding for projects such as a new jail, the Public Safety and Justice Center and the remaining phases of the Civic Center Master Plan.

“If we put money into a venture such as this, then we don’t have those dollars to use elsewhere,” added Wasserman. “I ask to keep that in mind as we move forward. There’s a risk, if we put money there we don’t have money over here, so we need to have our priorities right.”

Contact Nadia Lopez at nadia@sanjosespotlight.com or follow @n_llopez on Twitter.

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Comments (9)

Why not use this as an opportunity to build up a smaller bank/credit union to assist in doing business with the City/County? Maybe a local entity? It makes little sense to me that government, in all of its challenges addressing other issues, wants to jump into the banking business. Chase is a giant institution, and any giant entity can be called out for something unethical — so simply invest in a local business, small/medium sized, and build up an existing business…we all know that is needed, especially in San Jose.

Public banks as envisioned by the AB 857 framework are modeled after the Bank of North Dakota, which works with local banks and credit unions to issue loans. AB 857 in fact requires such partnerships. Local community banks and credit unions aren’t big enough to provide the banking services and hold all the deposits of a city or county as big as San Jose or Santa Clara County.

I don’t believe that credit unions can do lending to public institutions. There is a reason why credit unions are not an option, but I am not up on the details. The real reason. behind the public bank is not so much to serve individual residents of the area, as it is to lessen the costs of public projects – the goal is banking for public institutions so that interest payments on public projects are not paid to investors out of the area. Instead the interest on public projects is paid back the the public bank, saving lots of money on each project as well as making more money available for further public investments.

In theory, maybe. That theory relies on the County being able to run an efficient financial institution, including paying salaries, benefits, etc., to the workforce — which may not result in cost savings at all. So, why not locate institutions where interest rates would remain in CA? Honestly, the County is the most efficient operation — and this doesn’t make much sense, in my opinion…especially since other entities have an existing infrastructure and capacity. OR, find a smaller entity that is private, and help them build capacity… that would make more sense, in my opinion.

A public bank could be used as a way to help be a guarantor for worker cooperatives entering into leases or with credit cards, so no one person is “on the hook” for any business risk. The “personal guarantee” is still an issue with how co-ops form and operate.

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